Corporations Pressed for SEC Disclosure

Corporations Pressed for SEC Disclosure

Article excerpt

The heat is on corporations to disclose their environmental liabilities to investors and the general public. Corporations must now provide detailed disclosure on their financial statements of their existing and potential environmental liabilities under the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin 92 (SAB 92), issued in June 1993. In particular, SAB 92 holds that "contingent liabilities be displayed on the face of the balance sheet separately from amounts of claims for recovery from insurance carriers or other third parties," stated SEC Commissioner Richard Roberts.

Heightened public awareness of environmental matters has brought "increased pressure to bear on the SEC to ensure that publicly held companies are disclosing in a fair, full and timely manner the present and potential environmental costs of an economically material nature. My view is that the company owes this to the investing public," said Commissioner Roberts recently at an environmental due diligence briefing in Washington, D,C. Toward this end, the SEC is coordinating its activities with the Environmental Protection Agency (EPA) to help identify firms that may not be revealing to the SEC liabilities that the EPA has already identified. Such a failure to disclose may be viewed as fraud and could spur an SEC enforcement action or a civil suit brought on by investors.

In the past, depending upon the circumstances, companies could assume that there would be "no material adverse impact [from environmental liabilities] upon earnings." This was based on the assumption that the entity would be able to recover any potential losses via insurance, litigation, or some other source, and thus could "net this out." The SEC's SAB 92 now requires companies to list in their financial statements the actual liability on one line, and any expected recovery on another line. …